A New Congressional Proposal For A Medicare Long-Term Care Insurance Benefit

UNITED STATES - JULY 20: Rep. Frank Pallone, D-N.J., participates in the House Democrats' news conference on health care reform in the Capitol on Thursday, July 20, 2017. (Photo By Bill Clark/CQ Roll Call)

Representative Frank Pallone (D-NJ), the senior Democrat on the House Energy and Commerce Committee, is proposing a new universal Medicare long-term care benefit. His bill, still in draft form, initially would provide a daily cash benefit of about $100 after a two-year waiting period. As an alternative to the waiting period, Pallone is also considering a cash deductible that would increase with a beneficiary’s income.

As a back-end, or catastrophic, long-term care benefit, the bill roughly tracks a 2016 proposal by the Long-Term Care Financing Collaborative (on which I served), and a revised version proposed earlier this year by Judy Feder of the Urban Institute and Georgetown University and Marc Cohen of the University of Massachusetts at Boston.

Nearly all seniors would be eligible

The basic back-end design also is generally supported by groups such as the Bipartisan Policy Center and Leading Age, a trade association that represents many non-profit long-term care providers. Even some in the long-term care insurance industry back the concept since they think it would expand the market for shorter-term policies that could cover the first couple of years of risk—the period before the public program kicks in.

Under the Pallone plan, all older adults eligible for Medicare Part A (which is nearly everyone over age 65) and younger people who would be eligible for Social Security disability could participate in the program.

Generally, people who have severe dementia or need assistance with two activities of daily living (ADLs), such as bathing, eating, dressing, or going to the bathroom, would be eligible for benefits—a design that roughly tracks private long-term care insurance and Medicaid. The cash deductible alternative would be available to those who need help with three ADLs.

How will he pay for it?

The cash benefits would be based on the cost of five hours of home care, adjusted for area wages, inflation, and the intensity of care needed. Today, on average, that’s about $100. The benefit would be self-directed. Thus, participants would have broad flexibility in how they use the cash, which could support a wide range of services including home health aides, transportation, home modifications, or even to pay relatives for care.

The draft is far from perfect. Its benefit design is complicated and would be difficult for consumers to understand.

And it leaves out an essential element: How it would be funded. Medicare Part A is financed through the payroll tax. That presumably would be an option in Pallone’s plan, but the draft did not include a financing mechanism. To begin paying benefits quickly, the proposal would rely on general fund tax revenues at least in the early years—a feature that would be extremely controversial.

Public support

Pallone has asked a range of stakeholders for their views and he is likely to revise the draft before introducing a bill. And given the current state of politics, there is no chance it would get any legislative traction this year.

However, there appears to be broad public support for an approach such as Pallone’s. A 2017 public opinion survey found that about 56 percent of respondents backed a Medicare long-term care benefit and nearly two-thirds favored the idea of a universal public catastrophic long-term care insurance.

There are two plausible tracks toward a Medicare long-term care benefit. One would open the door to building one into Medicare Advantage managed care plans, a step Congress took earlier this year. The other is Pallone’s—a public long-term care insurance program.

No private market

Because there is effectively no private market for true catastrophic long-term care insurance, it is possible to find support among some conservatives for a public plan that looks something like Pallone’s. The problem is funding: Republicans--and even many Democrats—will not support a costly new entitlement program that is not fully funded. But they are just as wary of backing a tax increase that will finance long-term care coverage. Congress, you’ll recall, just cut taxes by $1.5 trillion over the next 10 years.

At the same time, there is ample evidence that a voluntary program will fail (remember the CLASS Act). Yet many conservatives object to a government mandate (remember the Affordable Care Act).

Those are two massive issues that remain unresolved. Yet, Pallone’s plan is an important step in the long-term care financing debate. I can’t wait to see what his final bill looks like, and whether he’ll convince any Republicans to join him in a bipartisan effort.

I am author of the book "Caring for Our Parents" and resident fellow at The Urban Institute, where I am affiliated with the Tax Policy Center and the Program on Retirement Policy. I also write a tax and budget policy blog, TaxVox, which you may read at Forbes.com or at http...